Lumen Technologies, Inc. · NYSE:LUMN
Lumen Technologies — Investor Day (June 2023)
47 slides from Lumen Technologies's investor day presentation, Jun 5, 2023
Slide 1: Repositioning Lumen for Stabilization and Growth
Repositioning Lumen for Stabilization and Growth JUNE 5, 2023
Slide 2: Forward-Looking Statements
Forward-Looking Statements Except for historical and factual information, the matters set forth in this presentation and other of our oral or written statements identified by words such as “estimates,” “expects,” “anticipates,” “believes,” “plans,” “intends,” “will,” and similar expressions are forw
Slide 3: Non-GAAP Measures
Non-GAAP Measures This presentation includes certain historical and forward-looking non-GAAP financial measures, including but not limited to adjusted EBITDA, adjusted EBITDA margin, net debt, net-debt-to-adjusted-EBITDA and free cash flow, each excluding the effects of special items, and adjustment
Slide 4: Repositioning Lumen for Stabilization and Growth
Repositioning Lumen for Stabilization and Growth KATE JOHNSON President & CEO 3
Slide 5: Principled Approach to Reposition Lumen
Principled Monetizing irreplaceable assets Approach to Reposition Lumen for Making Intentional Investments aligned to Stabilization growth markets, mindful of efficiency and cash and Growth Leveraging Experienced Team to deliver on transformation Driving Financial Outcomes through material improveme
Slide 6: Fast Start, Gaining Momentum
Fast Start, Reallocated capital from dividend to fund Lumen’s future Gaining Momentum Implemented new mission, strategy, and priorities with new executive leadership Launched execution of plan to win in the digital era Saved ~400K people hours of low-value-add work to be re-deployed to maximize impa
Slide 7: We See a Growing Market Opportunity
We See a Relevant US business Telco market sizes (in $B) Growing ~$135 Market +5% Product Market CAGR ~$115 Edge1 ~25% Opportunity SD-WAN ~20% Security2 ~15% Optical Services3 ~10% VoIP & UC&C ~5% IP-DIA ~3% Other Connectivity4 ~1% VPN Data Networks5 ~(5%) Voice6 ~(15%) 1.Edge Managed Services & Edg
Slide 8: Increasing Demand for Lumen's Secure, Fast Connectivity
Increasing Managed Security Global cybercrime costs increased 4x+ Demand for since 2015 Lumen's Secure, Fast Generative Artificial Intelligence Gen AI and hybrid cloud Connectivity increasing compute demand Edge Cloud Internet of Things driving bandwidth from Edge Network Cloudification Network-as-a
Slide 9: Recreating Lumen's Existing Fiber Network Could Cost Up to $150B
Recreating Lumen's Existing Fiber Network Could Cost Up to $150B Better monetizing irreplaceable asset that is newer, denser, offers better coverage, and is cheaper to build S TAT E - O F - T H E - AR T F I B E R B R O AD C O V E R AG E U N M AT C H E D R O U T E D I V E R S I T Y & S C AL AB I L I
Slide 10: Strategic Plan for Growth
Strategic Plan for Growth Secure the Base Drive Commercial Innovate for Growth Excellence 9
Slide 11: Change Initiatives Expected to Yield Better Financial Outcomes
Change 2023 2027 Initiatives Expected to Revenue ~$14.2B ~$14.8B Yield Better Financial Outcomes Adjusted EBITDA ~$4.7B ~$5.3B Free Cash Flow $0M – $200M $300M – $500M Net Leverage¹ ~4.2x ~3.3x Note: All outlook periods not shown as "incl. EMEA" exclude financial impacts from the pending sale of Lum
Slide 12: Today's Agenda
Today’s Agenda AS H L E Y H AY N E S - G AS P AR Secure the Base Business J AY B AR R O W S Drive Commercial Excellence S H AM C H O T AI & AN D R E W D U G AN Innovate for Growth M AX I N E M O R E AU Expand Mass Markets C H R I S S T AN S B U R Y Financial Outlook 11
Slide 13: Ashley Haynes-Gaspar: Secure the Base
1 Secure the Base • Re-invest in high impact initiatives • Focus on customer experience & lifetime value • Re-imagine partnerships 2 Drive Commercial Excellence 3 Innovate for Growth 4 Expand Mass Markets ASHLEY HAYNES -G ASPAR 5 Financial Outlook EVP & Customer Experience Officer, Wholesale and Int
Slide 14: Re-focusing Spend on High Impact Programs
S E C U R E T H E B AS E Re-focusing Spend on High Impact Programs We've implemented clean sheet budgeting… ~400K annualized people- …begun aggressive cost re-allocation to higher priority initiatives… hour savings • Eliminated ~100 low-value-added processes (~60 more since Q1'23 earnings) identifie
Slide 15: Re-investing in CX to Increase Retention
S E C U R E T H E B AS E Re-investing in CX to Increase Retention We are improving customer experience by reducing complexity… ~90% reduction in order validation time in pilot …and by increasing Customer Success investments in priority areas… • Enables us to protect, nurture, grow relationships in i
Slide 16: Driving Customer Retention and Lifetime Value with VPN and Voice Migration
S E C U R E T H E B AS E Proactively Driving Customer Retention and Lifetime Value with VPN ~3.4x and Voice Migration CLV3 for SASE + IP vs. VPN only SASE1 and SD-WAN2 are value-enhancing alternatives to VPN • VPN market declining by ~5%, while SASE1 and SD-WAN2 are growing ~20% annually ~1.8x CLV3
Slide 17: Migrated Customer to Next-Gen Solution, Deepening Relationship
S E C U R E T H E B AS E Migrated Customer to Next-Gen Solution, Deepening Relationship Voice Migration Example Customer's scale and needs made them an ideal fit for migration • Large, international energy company that had outgrown their legacy voice products ~2.4x increase in customer's Chose us fo
Slide 18: Partners Make More Possible
S E C U R E T H E B AS E Our partnering approach has radically improved • Better go-to-market alignment with partners • Accelerating funnel expansion and improving targeting through teaming Partners Make More Possible 17
Slide 19: Jay Barrows: Drive Commercial Excellence
1 Secure the Base 2 Drive Commercial Excellence • Monetize existing products • Optimize sales and channel • Increase focus on priority markets 3 Innovate for Growth 4 Expand Mass Markets 5 Financial Outlook JAY BARROWS EVP, Enterprise Sales and Public Sector 18
Slide 20: Driving Revenue Shift to Grow Category
D R I V E C O M M E R C I AL E X C E L L E N C E Driving Revenue Shift to Grow Category Market Business Strategy to Products Included 2023 Revenue 2027 Revenue 3-Yr Product Category Maximize Cash Flow (Non-exhaustive) CLV1 Mix2 Mix2 CAGR3 GROW Prioritize growth to: VoIP / UC&C, SASE, ~10x 41% 59% ~8
Slide 21: Monetizing Underutilized Products
D R I V E C O M M E R C I AL EXCELLENCE Monetizing Underutilized Products We are commercializing our security capabilities… 4 new products monetized with …overhauling how we take Edge to market to drive adoption… Rapid Threat Defense …making early moves to win Network-as-a-Service… $25-35B NaaS1 add
Slide 22: Refocused Sales Efforts on Grow Category
D R I V E C O M M E R C I AL EXCELLENCE Refocused Sales Efforts on Grow Category We have increased sales team capacity to enable more time selling… • Shifting smaller accounts to Customer Success, increasing time spent on cross- and up- selling • Re-focusing sales time to focus on Grow product categ
Slide 23: Increasing Focus on Growth in Enterprise
D R I V E C O M M E R C I AL EXCELLENCE Increasing Focus on Growth in …and Already Enterprise… Impacting Sales Investing to enhance strategic sales in Large Enterprise • Continues to be a mission-critical market for success ~5% QoQ increase in Large Enterprise • Increased capacity and focused sales
Slide 24: Solving Digital Challenges
D R I V E C O M M E R C I AL EXCELLENCE Solving Digital Challenges HZ sought to improve its WAN environment to meet client needs ~3x increase in 'Grow’ • Needed extensive network visibility and trusted security compliance given federal clients products sold, significantly increasing MRR1 Delivered i
Slide 25: Sham Chotai and Andrew Dugan: Innovate for Growth
1 Secure the Base 2 Drive Commercial Excellence 3 Innovate for Growth SHAM CHOTAI EVP, Product & Technology • Digitize by simplifying IT architecture • Expand security offerings and fiber network • Cloudify the network 4 Expand Mass Markets 5 Financial Outlook ANDREW DUGAN EVP & Chief Technology Off
Slide 26: Digitize to Enable Growth
I N N O V AT E F O R G R O W T H Digitize to Enable Growth Decommission ~70% of user- Rationalize 12 legacy data facing IT-owned systems warehouses by simplifying architecture (from ~170 into single modern cloud-based platform, user-facing IT-owned systems to ~50) enabling democratized data access ~
Slide 27: Improving Customer, Partner, and Employee Journeys
I N N O V AT E F O R G R O W T H Improving Customer, Partner, and Employee Journeys Drive sales productivity by equipping sales with a Next Best Action tool leveraging behavioral data Decrease time-to-quote for solutions by improving tooling and workflow automation ~$50M Increase operational reliabi
Slide 28: Driving Innovation in Security with Leading Network
I N N O V AT E F O R G R O W T H Driving Innovation in Security with Leading Network Rapid Threat Defense Automated threat detection and response by Black Lotus Labs® We are innovating in security by leveraging our expansive, increasing, ~$180B cybersecurity market with next-generation fiber network
Slide 29: Monetizing Our Unique and Powerful Fiber Network
I N N O V AT E F O R G R O W T H Monetizing Our Unique and Powerful Fiber Network Investing in the newest generation fiber... …and driving performance …at a lower build cost Lumen Intercity Fiber Network – North America 6M intercity fiber miles ~60% deployed plus an additional 6M to come more capaci
Slide 30: Largest 400G Wavelength Network Satisfies Need for Higher Bandwidth
I N N O V AT E F O R G R O W T H Largest 400G Wavelength Network Satisfies Need for Higher Bandwidth Expansion enables better support of growing customer bandwidth needs and positions us to increase share Lumen 400G Wavelength Network – North America ~$25M annualized revenue ~6 months post-launch 24
Slide 31: Customer Views on Network Solutions: Lumen's NaaS Will Deliver Step-Change
I N N O V AT E F O R G R O W T H Customer Views on Lumen's NaaS Will Deliver Network Solutions: Step-Change Improvement We talked to ~1,000 customers to ensure our NaaS fits their needs Hard to buy Activate new features in a few clicks • >25% of customers surveyed want quicker provisioning Easily sc
Slide 32: NaaS Presents Significant Upside that Lumen Is Positioned to Win
I N N O V AT E F O R G R O W T H NaaS Presents Significant Upside that Lumen Is Positioned Well to Win NaaS1 is a game-changing market opportunity… …that Lumen is uniquely positioned to win given: Est. SAM2 across Mid-Market and Large Enterprise channels • Owned and high-performing fiber network $25
Slide 33: Maxine Moreau: Expand Mass Markets
1 Secure the Base 2 Drive Commercial Excellence 3 Innovate for Growth 4 Expand Mass Markets • Expand fiber footprint • Streamline operating model • Increase fiber penetration 5 Financial Outlook M AXINE M OREAU President, Mass Markets 32
Slide 34: Ramping Fiber Build to Recapture Market Share
E X P AN D M AS S M AR K E T S Ramping Fiber Build to Recapture Market Share 5-7M Quantum Fiber builds (‘22-'23E) additional fiber locations # enabled locations planned to hit 8-10M target 0.4M+ 3.6M+ 3.1M 0.1M ~$1K-$1.5K average cost to enable per fiber location 40%+ long-term penetration of fiber
Slide 35: Streamlining Operating Model and Go to Market to Improve Execution
E X P AN D M AS S M AR K E T S Streamlining Operating Model …and Seeing Early and Go to Market to Improve Signs of Progress Execution Streamlined to build more quickly and efficiently ~90% planning yields on new fiber builds, up from as low as 10% in 2022 Changed GTM and ops organization models ~25%
Slide 36: Driving Increased Penetration and ARPU Growth
E X P AN D M AS S M AR K E T S Driving Increased Penetration and ARPU Growth Strategically selecting expansion markets… +125k fiber net adds expected in 2023 • Unleashing gig and multi-gig speed internet in more than 18 cities nationwide • Focusing on existing urban / suburban markets …offering simp
Slide 37: Generating Positive Future Results for Mass Markets
E X P AN D M AS S M AR K E T S Generating Positive Future Results for Mass Markets Plan to ramp annual fiber build pacing to 1 million …results in return to growth on key financial metrics locations by 2025… Total fiber-enabled units by year1 (M) ~8% ~9% ~3% ~(2%) ~4% ~(3%) ~3% 7.4 ~(1%) 6.4 ~(7%) ~
Slide 38: Chris Stansbury: Financial Outlook
1 Secure the Base 2 Drive Commercial Excellence 3 Innovate for Growth 4 Expand Mass Markets 5 Financial Outlook • Business and Mass Markets Revenue • Adj. EBITDA, Capex, and Free Cash Flow • Leverage CHRIS STANSBURY EVP & CFO 37
Slide 39: Expect Revenue and Adj. EBITDA Growth in 2025
F I N AN C I A L O U T L O O K Expect Revenue and Adj. Improving sales capacity, accelerating new EBITDA Growth in 2025 customer acquisition and increasing penetration Revenue and Adj. EBITDA Growth Migrating customers to go-forward technology solutions while reducing churn and improving CX Cost opt
Slide 40: Business: Stable Margin Profile as Product Mix Evolves
F I N AN C I A L O U T L O O K Business: Stable Margin Profile as Product Mix Evolves Total Business Revenue Business Revenue Mix Enterprise 2023 Wholesale Total Business Direct Margin1 Channels Grow 41% 32% $4.2B ~82% Nurture 33% 27% $3.4B ~66% $11.1B 38% Harvest 18% 41% $2.7B ~81% 2023 Other 8% 1%
Slide 41: Business Segment Outlook
F I N AN C I A L O U T L O O K Business Segment Outlook Revenue and Adjusted EBITDA expected to stabilize in 2024 and grow thereafter Revenue Adj. EBITDA Capex Adj. EBITDA — Capex3 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 Financial Metric1 2
Slide 42: Mass Markets Segment Outlook
F I N AN C I A L O U T L O O K Mass Markets Segment Outlook High margins in fiber unit economics as program scales Revenue Adj. EBITDA Capex Adj. EBITDA — Capex2 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 2023 2024 2025 2026 2027 Financial Metric1 2023 2024 2025 2026
Slide 43: Quantum Fiber Investment Drives Long-Term Value
F I N AN C I A L O U T L O O K Quantum Fiber Investment Drives Long-Term Value Once scale is achieved, cash flow generation expected to be material Quantum Economics $3B 100% Anticipated Capex reduction of ~$1B per year after 80% investment phase $2B 53% 54% 55% 48% 52% 60% 40% $1B Growth in penetra
Slide 44: Lumen Consolidated Outlook
F I N AN C I A L O U T L O O K Lumen Consolidated Outlook Investing to return to growth while maintaining positive Free Cash Flow 1 Revenue Adj. EBITDA Capex Free Cash Flow2 ~36% ~33% 2023 2024 2025 2026 2027 2023 2024 2024 2025 2025 2026 2026 2027 2027 2023 2024 2025 2026 2027 2023 2024 2025 2026 2
Slide 45: Leverage Reduces Over Time
F I N AN C I A L O U T L O O K Leverage Reduces Over Time Manageable debt maturities with stability Lumen Maturity Profile (in billions) Leverage Outlook $9.4 5.4 ~4.2x ~4.4x 5.2 ~4.0x ~4.2x 5 ~3.9x ~4.0x ~3.6x 4.8 ~3.8x $3.1 $3.4 4.6 ~3.6x 4.4 ~3.3x $1.6 $1.5 ~3.4x $0.1 $0.1 $0.5 4.2 ~3.2x $0.1 4 ~
Slide 46: Financial Recap
F I N AN C I A L O U T L O O K Financial Recap Initiatives give us Cost optimization and Ample fuel to fund confidence in revenue simplification supports Adj. investments necessary for growth EBITDA expansion turnaround 45
Slide 47: Principled Approach to Reposition Lumen
Principled Monetizing irreplaceable assets Approach to Reposition Lumen for Making Intentional Investments aligned to Stabilization growth markets, mindful of efficiency and cash and Growth Leveraging Experienced Team to deliver on transformation Driving Financial Outcomes through material improveme